Definition
An insured account is an account held at a bank, savings and loan association (S&L), credit union, or brokerage firm that participates in a federal, state, or private insurance program. These programs provide protection against losses, subject to specific limits.
- Banks and Savings and Loan Associations (S&Ls): Most accounts are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC).
- Credit Unions: These accounts are insured by the National Credit Union Administration (NCUA), often up to $250,000.
- Brokerage Firms: Accounts are typically insured by the Securities Investor Protection Corporation (SIPC), which provides limited protection against the loss of cash and securities in the event of broker-dealer failure.
Examples
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Bank Account Insurance:
- Jane holds a savings account with ABC Bank, which is FDIC-insured up to $250,000. This means that in the event ABC Bank fails, Jane’s deposits are protected up to $250,000.
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Credit Union Account Insurance:
- Robert has a checking account at XYZ Credit Union. The NCUA insures his account up to $250,000, protecting Robert’s funds in the event of the credit union’s insolvency.
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Brokerage Account Insurance:
- Angela has an investment account with a brokerage firm that is a member of the SIPC. Her account, including securities and cash up to $500,000 (with a $250,000 limit on cash), is protected if the brokerage firm goes bankrupt.
Frequently Asked Questions (FAQs)
What types of accounts are typically insured?
Most types of deposit accounts, such as checking, savings, money market deposit accounts, and certificates of deposit (CDs), are insured at banks, S&Ls, and credit unions. Brokerage accounts that hold cash and securities are also typically insured.
What is the current insurance limit for bank accounts?
The current insurance limit for individual accounts held at banks and savings associations insured by the FDIC is $250,000 per depositor, per insured bank, for each account ownership category.
Who insures credit union accounts?
Credit union accounts are insured by the National Credit Union Administration (NCUA), with the same $250,000 insurance limit as FDIC-insured accounts.
What does SIPC insurance cover?
SIPC insurance covers the loss of cash and securities in brokerage accounts due to broker-dealer failure. The coverage limit is $500,000, which includes a $250,000 limit for cash.
Are investments insured in the same way as deposits?
No, investments are not typically insured against market losses in the same way deposits are. SIPC insurance only protects against the failure of a brokerage firm, not the decline in value of investments.
Related Terms
Federal Deposit Insurance Corporation (FDIC)
The FDIC is an independent agency of the federal government that insures deposits in U.S. banks and thrifts in the event of bank failures.
National Credit Union Administration (NCUA)
The NCUA is an independent federal agency that supervises and insures federal credit unions and up to $250,000 per depositor.
Securities Investor Protection Corporation (SIPC)
The SIPC is a nonprofit corporation that protects customers of brokerage firms from the loss of cash and securities held by a financially troubled firm.
Online References
Suggested Books for Further Studies
- “Banking Law and Regulation” by Jonathan R. Macey and Geoffrey P. Miller
- “Financial Institutions Management: A Risk Management Approach” by Anthony Saunders and Marcia Cornett
- “The Law of Financial Institutions” by Richard Scott Carnell, Jonathan R. Macey, and Geoffrey P. Miller
Fundamentals of Insured Accounts: Finance Basics Quiz
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